Guarantees and Indemnities

What is a guarantee?

A guarantee, is, putting it very simply a promise. A contractual agreement that creates a secondary obligation, (the first is a primary obligation) to promise to ensure that you fulfil your obligations and/or a promise to fulfil those obligations if that third party fails to do so.

So in practice it means that your primary obligation will be to repay a loan made by a lender to you. The lender may have doubts about your ability to repay based on your primary obligations, hence the reason for the guarantee and hence the reason for the secondary obligation. Â What is an indemnity?

An indemnity, is, putting it very simply the big brother of a guarantee, a promise to be responsible for another’s loss. It is a primary obligation not contingent on anything. If you provide an indemnity it is usually watertight.

Both are contracts and must, like any other contract have the forms of an offer, acceptance, intention to create legal relations and consideration.


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